Crofts v. Johnson , 6 Utah 2d 350 ( 1957 )

CROCKETT, Justice.

The plaintiff, Elaine Crofts, sued W. Glenn Johnson to quiet title to a home located in ICanab which she claimed under an auditor’s tax deed. The trial court ruled that inasmuch as the tax payment for the auditor’s deed was made by a mortgagee, any interest so acquired was held in constructive trust for Johnson, the mortgagor and legal titleholder, and entered judgment requiring conveyance of title to Johnson upon reimbursement to plaintiff for the amount paid for the tax deed plus interest. Affirmed. Costs to respondent.

Johnson had mortgaged the property in 1946. Taxes for the years 1947, 1948, 1949 and 1950 went upaid, and Johnson likewise was in default on payments on the mortgage. October 27, 1950, plaintiff’s father, William J. Mackelprang, purchased the mortgage from the bank, taking an assignment thereof. He made abortive attempts to foreclose the mortgage but did not obtain service upon Johnson. In December, 1950, after removing tenants who were in possession under contract with Johnson, plaintiff Elaine Crofts who had succeeded to the interest of her father, moved into the property, where she has resided since. At the May sale in 1952, which was based upon the expiration of the period of redemption for delinquent 1947 taxes, Mr. Mackelprang bid in the property for $262.45 accrued taxes, penalties, interest and costs 'for the years 1947 through 1951.

Johnson claims that Mrs. Crofts holds the position of a tenant whose rents should have been available to pay the taxes and protect the property, or at least was a mortgagee in possession owing a duty to pay the taxes and protect it. There is nothing to indicate that Crofts’ possession was under any contract with Johnson. It is undisputed that her possession was hostile and adverse to him.

The question for our consideration is whether a mortgagee can acquire a title superior to and divest his mortgagor of title by buying in the property at a tax sale.

The most challenging aspect of the argument in favor of the right of the mortgagee to do so is that such privilege is open to any third person to so purchase and divest them both. Therefore, why not let the mortgagee do it? Why should he alone be disqualified from thus purchasing the property in which he already has an interest at tax sale and thus protecting it from acquisition by others ? This reasoning is not without some merit, and indeed gives us pause. However, other considerations herein discussed, together with the fact that the rights of the mortgagor and mortgagee inter se should be determined upon considerations between themselves, impel us to the conclusion we have reached.

The weight of authority is that a mortgagee cannot by purchasing a tax title obtain the property against his mortgagor.¹ The reasoning underlying this rule stems from the relationship between the parties and considerations of public policy. The mortgagee has the right either expressed in his contract or implied because of his interest in the property, to pay the taxes or redeem the property from tax sale to protect it. Illustrative of this is the case of Ragor v. Lomax:²

“ * * * It may, it is true, in all cases be the duty of the mortgagor, as between himself and the mortgagee, to pay the taxes upon the land, and to keep the same free from liens which will affect the security of the mortgagee. But while it may not be the duty of the mortgagee to pay the taxes it is clearly his right to do so, for he has a manifest interest in the protection of his mortgage title. In the land both the mortgagor and the mortgagee have an interest * * * the protection of which is for the benefit of both, but the lien of the state for taxes is superior to the right of each, and if one or the other does not discharge it, the land will be sold and the interest will be extinguished. The mortgagee has an interest in discharging the tax lien and a right to discharge it, and the sum that he pays to discharge it goes to increase the amount of his encumbrance, even if not so agreed in the mortgage, for it is the duty of the mortgagor to protect the security he has given * * *. The mortgagee then having the right to pay, though not bound to do so, and the means of compelling repayment, if he does pay, is it not just to say that he shall be held to have paid the tax or purchased the tax title for the purpose, not of cutting off the right of the mortgagor, but of securing himself— that his act shall inure to the protection and not to the destruction of the regular title ?”

In regard to the problem we here confront it is sometimes stated that the mortgagee and mortgagor are really not possessed of community interests in the property, but their interests are actually adverse to each other; and also that the mortgagee has no duty to pay taxes.³ These ideas seem to spring from considering the mortgagee’s situation solely in relation to the position of the mortgagor. However, if we analyze the position of the mortgagee and the mortgagor as against third parties and the public, a different picture appears. Should any third party attack the title under which both claim, they certainly have a common interest to protect against him. The same principle is applicable to taxes. While as between the two, the primary obligation to pay taxes is upon the mortgagor, and he is obliged to protect the property and the mortgagee, if the taxes are not paid, the interest of the mortgagee is also subject to forfeiture and he, so far as the taxing authority is concerned, is under an obligation to pay the taxes or lose his interest in the property, just the same as the mortgagor. Therefore, as between the mortgagee and the taxing authority the former does have a duty to pay taxes.

This court has recognized the generally accepted principle that one who is under a duty to pay taxes cannot shirk that duty and then take advantage of it by purchasing the land at tax sale, and that if he does so it will not strengthen his title.⁴

The cases make a distinction as to the right of the mortgagee to purchase tax title and assert it adverse to his mortgagor on the basis of possession.⁵ It is more uniformly held that the mortgagee in possession cannot do so because his use of the property imposes a duty upon him to pay the taxes. It is here urged that this case should be determined upon the ground that the mortgagee was out of possession because she was not in possession at the time the 1947 taxes became due. However, she had moved in in 1950 and had there remained until 1952 before the purchase at tax sale took place, during all of which time these taxes were due and payable.

We fail to see the logic or propriety of permitting a mortgagee in possession to enjoy the use, or rents, profits and benefits of property and let taxes go unpaid, and then be able to purchase the property at tax sale and thereby acquire title adverse to the mortgagor. It is the policy of the law to see that all property and propertyholders bear their fair share of tax responsibility. Therefore, no incentive, even a dubious one, of being able to acquire a tax title, should be held out to the mortgagee not to pay taxes on property in which he has an interest to protect. Sound public policy should encourage both the mortgagor and the mortgagee to promptly pay the taxes on such property.

There is the further important consideration that the rule advocated by the plaintiff would prove difficult in practical application in that it augurs for inequitable results. If the mortgagee is permitted to purchase tax title and assert it against the mortgagor, there is some conflict in the authorities as to whether such taking of the security extinguishes the mortgage debt. While the better reasoning would seem to be that the debt is not extinguished, we are not here concerned with that problem. Whichever way the rule be, serious inequities might result if the mortgagee could purchase tax title and usurp the property from the mortgagor. If thus taking the property extinguishes the mortgage debt, which may well be for thousands of dollars more than the property is worth, the mortgagee would be cheated out of the balance of his debt. If the debt is not extinguished where the property has a large value in proportion to the debt, the mortgagee could purchase the property at tax sale at small cost, take from the mortgagor the asset out of which he expected to produce the proceeds to satisfy the mortgage, and still hold the mortgagor fully responsible on the debt. The potential inequities in either situation are manifest.

The rule followed by the trial court, though not without some difficulty, seems more sound and practical than the converse one (espoused in the dissenting opinion). Our rule tends to encourage those having an interest in the property to pay their taxes promptly; avoids the potential inequities discussed above,.and reaches a just result because the mortgagee is permitted to add to the mortgage debt expenditures made for protection of the property plus interest thereon.⁶

WADE and HENRIOD, JJ., concur.

1 . See Annotation 140 A.L.R. 295 et seq.; Jones on Mortgages, 8th Ed., Secs. 882, 883, Vol. 2; Thompson on Real Property, Sec. 2919, Vol. 5.

3 . See IV American Law of Property, Sec. 16.106J for pro and con discussion of mortgagee’s right to purchase tax title and assert it against mortgagor.

4 . See Hadlock v. Benjamin Drainage District, 89 Utah 94, 53 P.2d 1156, 106 A.L.R. 876; Free v. Farnsworth, 105 Utah 583, 144 P.2d 532; 51 Am.Jur. Taxation, Sec. 1054.

5 . See Annotation 140 A.L.R. 294 et seq.

6 . Utah State Building & Loan Ass’n v. Perkins, 53 Utah 474, 487, 173 P. 950; Citizens Sav. Bank v. Guaranty Loan Co., 62 R.I. 448, 6 A.2d 688, 123 A.L.R. 1248.